I'm trying to get into the investing game and I have no idea what I'm doing. Does anyone here feel like they've leveled up? If so, what did you do? Has anyone gone from from noob to "expert" (however you may define that)? What were the resources y'all used and steps you took?

Has anyone here completed the curriculum Jacob recommended in his blog post? Did you feel like you learned enough to justify the time investment? I have the first finance book and read about half of it but I have trouble learning anything "technical" (anything with numbers, computer programming or wires) from just reading. If anyone completed the curriculum, did you do anything apart from just reading the books?

Should I just get my hands dirty and start trading? Does anyone have any experience learning this way? How does one insure they are learning from losing money?

Some potentially pertinent details:

I have somewhere in the high five figures of savings. A large part of my savings is locked up in a self-employed 401k and IRAs as the easiest way for me to get returns currently, given low investing knowledge, is simply beat the taxman and get free health insurance. I plan on accumulating for awhile longer. With my current savings rate, if my current savings kept up with inflation, I'd hit my "number" in ~10 years.

MMM convinced me that buy and hold was the way to go so I have everything from previous years invested in a Vanguard U.S. total stock market fund and total bond market fund. I haven't invested anything this year so I also have a fairly large cash position. The stocks have done quite well since everything is sky rocketing (I started buying in 2015) but after reading a Jim Collins article about how the stock market "always goes up" I started to worry about this strategy. I then came over here and read the blog articles on buy and hold index investing and started to worry more. Frankly, I'm interested in the most passive money out there. I'm not super interested in reading companies financials or learning about real estate, but I do enjoy learning new skills and I do want to have at least part of my income come from investment returns. I really wish indexing was some magic bullet that had an average of 4% real returns if one just "weathered the storm" and had the stomach to buy into a declining market. I don't think this will work and even if it would, I'd like to understand why I think it would work. IOW, I'd like to "not punt" on my ERE income.

A few random ideas to consider.
I invest since 2005-6 so I have some experience but nothing transcendent.

- aside from reading which can help, you need time in order to learn how to deal with the market. You can’t shortcut that in my opinion.

- you can probably do better than buy and hold diversified index funds, but you sure as hell can do much worse.

- buy and hold is simple but it’s not easy. For it to work you have to both BUY and HOLD when markets are falling, and that can be really hard psychologically.

- when something like 2008-2009 happens, everybody gets slaughtered. Nobody thinks “yay I beat the market by 10% I’m doing awesome!” when they are down 40% and the index is down 50%.

Last but not least, here’s the “elevator pitch” I give to all “new” investors that are desperate enough to ask my advice ( ).

Don’t overthink every single move.
If you follow these 3 rules you will do much better than 99% of the people around you:

1- save a lot (minimum 25%). People usually balk at this but I would assume everybody does that already here.
To invest you need money, so you need to keep yourself from spending all you earn.

2- invest in a diversified manner, avoiding colossal mistakes. Do world index funds, tilt a bit for value, pick some stocks, whatever. Just focus on avoiding big mistakes (ie going all in with that shiny IPO, buying triple leveraged ETNs, buying funds with 3% fees).

3- never sell what you buy. This will both spare you from selling at the wrong time, and oblige you to think long term when you buy.
You will occasionally break this rule as you will do with all three, but perfection is for the gods and for the boring.
I have pressed “sell” maybe 15 times since 2005

This is the no. 1 mistake individual investors make (holding on to their losses). If the stock you bought is showing a loss, market is telling you that you've made a mistake. Get out while the loss is still small.

If you've already read through MMM, the next thing I'd recommend is some Bernstein books (Intelligent Asset Allocator) and/or one of the books about the Permanent Portfolio (either Browne's or Rowland's). THEN move on to the Economics and Investment books in the ERE blog's Curriculum. Archive.org has most of them for free.

I definitely dont think you should just "get your hands dirty trading" and the only thing you will learn by losing money is to be afraid of the market.

And I second everything Seppia said about Diversify, Keep expenses low, and trade rarely. If it was a good investment when you bought it, it remains so until you have new information (beyond today's price movement.)

Thanks for the responses. I'm glad there was an early and strong disagreement that seems to be a part of the investment world. For every person who has a sensible reason why you should do one thing, someone else has a sensible reason why you shouldn't. That's why I'm much more concerned with how y'all came to these conclusions and how one learns to get to the stage where they can make informed opinions.

@ Seppia

I appreciate the advice. I already save most of my paycheck as frugality is natural to me/ instilled since birth and especially since discovering this community which gave tightwadism a purpose. I am also totally sold on the FIRE/ERE save 25-33x living expenses if you want to retire early, and I'm not counting on skyrocketing Facebook stye IPOs that return 50% every 3 days. I have limited resources that I trust so I've read all MMM articles about investing multiple times, most of the Jim Collins articles and a few other articles that were generally in support of the efficient market hypothesis/ trinity study. These are people who think like me so it all made sense. They also preach no selling in a down market and not to "churn" the portfolio too much. This seems to me like a grounded starting point vs. those who assume they know everything and are out there trading based on stock tips from that dude who yells a lot on TV and emotions. After reading some different opinions (mostly dear leader JLF and y'all on here) I became aware that 1) this strategy is becoming popular and 2) there are other equally good reasons to not commit 100% to the faith of indexing.

There are clearly companies/ investments that were good at one time that no longer are. How does one distinguish them? If I'm holding while something is dropping or rising, I want to know why. After doing some reading on the subject and prowling around on here, it seems like there is no way to teach someone this easily, rather it's something one has to figure out for themselves. IOW, those who've taken the path might not be able to guide you down it, but they can at least show you where the trailhead is.

@TheDinosaur Thanks for the recommendations on books. I read one of Bernstein's books, he basically supports the efficient market hypothesis, correct? Maybe I'm remembering wrong it was a few years ago and the only thing I remembered is how much I didn't like his boomer dad tone...get out of your cell phones and your go nowhere arts careers and become sensible accountants who buy some stocks you stupid kids. I like to imagine his son became an app developer. I'll pick up a book on permanent portfolio, I've read Tyler9000s stuff on PP and Golden Butterfly and some of the forum discussions on it and it was very helpful. I know it's on a different subject but I really enjoyed Browne's "How to Find Freedom in an Unfree World", except when he turns into a polyamory apologist at the end.

Let me amend my original noob comment that I am already sold on the broad strategies of diversification, low expense ratios (hence vanguard) and trading rarely, though not necessarily never. This is not a dismissal of the advice given so far, I believe it is great noob advice. But... tell me how you came to believe what you believe and possibly why. Thanks again for the help y'all!

1- I don’t subscribe to the Efficient Matkey Hypothesis.
I do believe that markets are generally efficient, but not always. Markets are driven by sentiment also, and in times of extreme optimism or pessimism any asset can be mispriced.

2- still, I know it’s statistically VERY hard to do better than buy and hold large diversified indexes.
Again buy and hold is also hard, in spite of being a simple strategy.

3- I also know that in many financial aspects of my life, I do better than 95%+ of my peers (as I would guess almost everybody on this forum does), so why not also in stock picking? Individual investors don’t have access to the same information that the pros have but they have other significant advantages (among the most importants: they can have a long term horizon while the pros have a 3-6 months horizon at best).
This is why I have about 50% of my stocks in indexes and 50% in individual stocks.
I’m comparing the performances since January 1st 2016 and in around 7 years I’ll draw some conclusions.

Regarding your “some companies are not worth owning any more”, I agree but it’s very hard to know in advance.
One of the top performers of the last 15 years is dominos freaking pizza.
Returned approximately five kajillion percent (citation needed), better than google Apple etc.
Apple was on the brink of bankruptcy before being saved by the iPod and today it’s a Trillion $ company.
I still think most times one is better off just holding.

I think Bernstein believes in the weak form of the EMH. IOW exploitable inefficiencies do exist, but there is a cost (in terms of effort) in finding them. Markets don't *have* to be efficient, but they tend toward efficiency when certain conditions are met. The main one being large numbers of active investors continuously competing with each other.

OTOH, Price movements are the largest component of total returns. And those are predicted by the Market, however dumb or brilliant the market may be. This is why I've converged on the Asset Class Junkie strategy of investing. Asset allocation is a greater determinant of returns than security selection. And over any time period, broad market index funds will inevitably outperform a simple majority of all active investors. So, I do what Bernstein would call a Buckets approach.

1) Buy high quality investments...especially if you don't want to. There will be times an IPO or some "hot investment/scheme" will come along. Run. Unestablished=likely not high quality. Exciting=dangerous.

2) Stay diversified...especially if you don't want to. There will be times you don't want stocks, or bonds, or whatever because it's "not doing well". Once you pick your well thought out allocation, stick with it. If you don't dislike one of your investments, you're probably not doing it right.

3) Plan to hold them for the long term...especially if you don't to. There will be times you'll want to sell and buy something else just because one went down and one went up. Don't. Price movement alone is a horrible reason to buy or sell anything. If something is fundamentally awesome AND cheap, great. But if price is the first reason to make a change, don't.

I know it's hard to tell at first what qualifies as one, two and three. You'll figure it out.

Extra advice: Read Warren Buffett. Read a lot of whatever he has to say. His general advice is pretty impeccable. Especially his advice on "Mr. Market" - it will change everything you think you know about the stock market and the people around you.

I'm seeing a lot of support for buy and hold indexing here which I hadn't expected on this forum. My criticisms are Jacob's criticisms because those are the only informed criticisms I've read. How do y'all respond to 1) the increase in popularity of passive buy and hold, 2) the coming demographic based baby boomer retirement sell-off, 3) the "nobody is driving the bus" effect that occurs if a large portion of funds are held as passive index investments?

Gilberto brought up another problem, isn't the American stock market somewhat of a unicorn? Do y'all believe that world GDP (or just American GDP) will continue to rise as we reach resource constraints? I am cautiously optimistic that tech will save us* (slightly greater than 50% odds, just my current opinion though) but it's easy to imagine a scenario in which this is untrue. If GDP doesn't increase every year there's no fundamental reason to expect a stock market index to, correct?

@ Seppia, what is CAPE? How is it calculated. I'm guessing from the letters it's some sort of adjusted price/ earnings ratio? What are the generally accepted numbers for a buy and sell range. I understand there is know metric to rule them all, just trying to gain a basic understanding of terms.

What are the ratios y'all look at when comparing investments and/ or asset classes? Why?

@arcyallen: 1) What is your process for determining a high quality investment? 2) Currently bonds seem like an obvious skip. Interest can't go anywhere but up and interest rates are very low. I bought a bond index 2 years ago because I was simply creating a 90/10 passive portfolio (All hail the trinity study). Would you buy bonds under current conditions? For educational purposes I'm more interested in your response to 1 than 2, possibly a noob move. What would be your first Buffet read? I just finished Graham's intelligent investor. Man that guy is good at this shit and that book is boring af. It was really hard to get through, it took me 9 weeks and I don't even think I grokked 1/3 of it! The librarians cried.

*what I mean by this is that, on average, global GDP (and American GDP) will increase**, not that global warming or environmental collapse isn't real.

** To reiterate, I state the GDP stuff as a current >50% belief, not a guaranteed fact. We can all imagine it going the other way.

1) the increase in popularity of passive buy and hold, 2) the coming demographic based baby boomer retirement sell-off, 3) the "nobody is driving the bus" effect that occurs if a large portion of funds are held as passive index investments?

1) It has been popular because the market has gone up for 9 years. Most people will a) not buy and b) sell at the next downturn. So not worried at all.

2) it’s something that is outside of my control. Plus forecasting the behavior of large groups of humans doesn’t strike me as a very simple and straightforward exercise.

3) indexes represent a very large percentage of holdings, but a limited percentage of trades. They obviously have an impact on prices (especially on smaller stocks, see the great “buy high and sell low with index funds” article from research affiliates) but it is limited.
Also, indexes didn’t prevent GE to be cut in half.
Lastly, a lot of the money going into index funds seems to be coming from much higher fee active funds that in reality are “closet indexers”

This said, I haven’t been buying the USA stock market since 2016, so I’m not a great example of an index radicalist.

CAPE = cyclically adjusted PE. It’s a PE done on the average E of the last 10 years.
It is supposed to smooth out periods of unusually high earnings (like now) or unusually low ones.
It’s got almost no correlation with short term and mid term price moves, but has historically been a very good predictor if returns on the next 10-15 years.

If you've read Graham's Intelligent Investor, you know one of his main criteria for choosing a stock issue was comparing the average earnings over the last 10 years to the current stock price. CAPE 10 is the same idea applied to entire national markets, and adjusted for inflation. It turns out that the national CAPE 10 is a better predictor of future returns than any other studied metric.

How do y'all respond to 1) the increase in popularity of passive buy and hold, 2) the coming demographic based baby boomer retirement sell-off, 3) the "nobody is driving the bus" effect that occurs if a large portion of funds are held as passive index investments?

2)This would effect everyone's total returns regardless of their investment strategy. Dividend income-oriented investors would do slightly better, especially if they could anticipate what all those boomers would be buying from publicly traded corporations.

3)I agree that this could become a problem if indexing became too popular. But, see my answer to #1 and the fact that a large fraction of active investors is the main thing keeping markets efficient. I would worry more if indexing was over 30-40% of all invested money. Even then, you can find cyclically unpopular assets (gold, cash, specific sectors) and allocate to them.

Use expectancy; Consider the possibility of a particular scenario, its likelihood, and the cost of preparing/investing for it. Allocate accordingly.

Price movement alone is a horrible reason to buy or sell anything. If something is fundamentally awesome AND cheap, great. But if price is the first reason to make a change, don't.

Disagree.

Consider the following scenario.

A stock on your watchlist has shown increased revenue and earnings growth for the last x years and it's just breaking out of a nice base after a pretty good trading update. Analysts are upgrading both earnings and price target forecasts. So it's all roses and obviously, you buy.

A month later, the stock is up 20% and you're patting yourself on the back. The stock then spends the next 2 months moving sideways on increasing price volatility; some weeks your profit is down to only 10% but each time it comes back up. So you tell yourself you did a good job not selling on a way down.

One time however, the stock doesn't come back up, but instead goes down all the way to your purchase price and stops there. It's now trading below both 20d MA and 50d MA but you don't know that since you never look at the chart (you're a long-term investor). So you tell yourself: it's all good, I'm in the same place I was 3 months ago. Nothing has changed since the company hasn't published any new updates. If the stock was 20% higher just a couple of weeks ago, it's clearly only a temporary setback and it will be back up soon enough. What is more, you cannot miss such a wonderful opportunity to buy more of it since it's now 20% cheaper than just weeks ago. So you double up.

The stock then spends a week or two around the level you paid for it, but then, rather than going back up, it plummets 20% lower within only a few days on high volume (oh wait, you never check volume since you are a 'buy and hold' investor). You are a bit upset but then you comfort yourself seeing that the stock has stabilised and you even add some more. After all, it's such a bargain at the current price, and the dividend yield is just crazy good. The company is going to publish final results in a couple of weeks, so you decide not to look at the stock price anymore until then - you want to sleep in peace and those short-term price fluctuations are upsetting you a bit.

Finally, the day of the annual results arrives. You check the stock first thing in the morning before the market opens and you see that yesterday's closing price is down further 20% from when you last time checked... how is that possible? How can such a fine stock be down almost 50% from its peak only a couple months earlier? Never mind, it's even cheaper now and the dividend yield is in double digits, so it's clearly a steal. You glance at the results and see some numbers are up compared with last year. Obviously, the market must be wrong and you decide to buy some more. But then the market opens and the stock is marked down 10% within the first minute of trading. You watch in disbelief at the price goes lower and lower... it's now 12% down... 15%... You are not so sure it's such a good idea to buy even more at this time... so you decide to turn the computer off and leave for work.

While walking to work, you calm yourself down with some breathing exercises and decide you will check the annual results again on your lunch break, and only then you will make a decision what to do next. While eating a home-made sandwich, you check the 'financial highlights' section. The numbers haven't changed since the morning and still look positive, so you scroll down to the bit with the chairman comments... and you find some mildly upsetting phrases ('challenging market conditions', 'difficult trading environment', 'very competitive market', 'expecting growth to slow down', 'the board now expects revenue and profit for next year to be substantially below current market expectations', 'as emergency measure has decided to suspend the dividend'). You are barely able to type your stock's ticker with your shaking hands... and then you almost choke yourself with Aldi's value tomato when you see the stock is now down 30% since the morning. It's down over 60% from its peak only 2 months ago and 55% from your buy price 5 months ago...

And then you start to wonder. You look up all the regulatory news and can see some 'director shareholding' announcements... you look at the massive volume on the days the stock went down the most... you see that each time the stock finished the day below the previous support level, it then went substantially lower over the next few days. You start to suspect everyone but you knew what was coming... directors were liquidating their holdings, institutions expecting poor results were dumping the stock like if there was no tomorrow... only you didn't see this because the last update from the company was upbeat and there was no news for few months. And you never looked at the chart...

My take for someone new to investing is to stay in cash (meaning - low, save returns), a safe dividend stock, international, FANG (FB and Google mostly), edit-- someone mentioned pay down mortgage (a good idea). Being diversified outside the US or cash seems very practical given the cycle we are in. It's potentially the worst time to start learning and buying individual stock right now, or if you do, use very small sums of money... just for the learning experience.

Don't get too wrapped up in above because stocks could still go up for a while yet. The main thing to avoid is making big mistakes. Potentially the most common / greatest mistake is selling well valued long terms stocks after a market correction, when it's generally a better time to buy.

If you decide to stick with the buy and hold strategy, historically a very good plan, then stick with it. You can't be wishy washy about it; it's a bad sign if you are already considering changing strategies. When the market crashed in 2008, i stopped checking my 401k balances and just let it ride. Why punish yourself? At that time my brother called and reminded how I always talk about buying when the market goes down... unfortunately there was no money to invest, it was already all in stocks (a lost opportunity).

If Warren Buffett is still around he should give us some very good indicators for when it's a good time to get back into the market. If you are one of the rare people to actually have cash after a big correction, it can be an incredible buying opportunity.

MMM also talks about some lending options that looked pretty good, but I've never tried them. Regarding MMM index strategy getting a negative wrap. A good strategy is only 1/2 the knowledge you need, the greater half is understanding why most people lose money (including index funds). Generally that is
1. panic selling during a price drop
2. lack of patience (could be months or years)
3. immediate need for cash requires a sale (during a price drop)
4. changing a proven strategy **after a major correction**

Last edited by Michael_00005 on Wed Aug 15, 2018 11:02 am, edited 10 times in total.

It’s very hard to know in advance if a stock is only momentarily down, or if it’s going to zero.
This is why you diversify, you can’t get it right 100% of the time.
But if you force yourself to never sell, you will eventually get to know the company very well in time (I don’t understand why you equate “never sell” with “don’t get any information ever”).
For example, I have been a Royal Dutch Shell shareholder since 2006. When it was going down a couple years ago with oil tanking, I kept buying because I knew the company very well and was confident it would come out of the temporary crisis stronger than before.
I brought my average cost down from €24 all the way to €20.2 (I was also participating in the “get me the dividends in free stock” SCRIP plan).
The stock is now around €29, and I have a couple months ago sold a little bit of it (first at 30€, then at 31€) for the first time in my life, because my position was more than 15% of my total stock holdings.

So for a story like yours there’s a story like mine, but usually those who sell when the stock is down are just locking in the losses.

I agree with your last four points. They explain my rule “avoid catastrophic mistakes” I mentioned above.

Regarding peer to peer lending suggested by MMM, it’s complete and utter garbage.
I idiotically put a little bit of money in it (lending club) and the historical return is something around 0.5% total.
In three or four years IIRC.
It looks great if you keep reinvesting the “dividends”, because you keep adding new loans and they keep the monentary yield high.
But as the loans became older, delinquencies pile up and eat into the yield.
You are basically purchasing junk bonds, only from people who find it advantageous to borrow from you rather than from a bank.
Banks are usually better equipped than us to do this kind of Math/risk assessment.
Stay away

Yeah i tried betterment on MMMs review, Not as terrible returns as you've experienced with peer to peer lending(thankfully I avoided that one), but still underperformed a decent bit and wasn't worth the extra costs they charge. I'm not too sour over it as when I put the money in my alternative would probably have been leaving it in a savings account then with virtually no interest earned.

I'm not super interested in reading companies financials or learning about real estate

and that he is interested in passive investing. How can you recommend investing in individual stocks? Just switch the US index to a world market-capitallization weighted index. That will reduce US-based risks. It includes REIT. Where are the strong arguments that the US is going to out-perform the rest of the world going forward? How is the OP supposed to use the CAPE? If you are young, reduce the bond exposure and increase the stock exposure. Invest on a regular basis so you dollar-cost average.

About too much index investing, it's not really possible because whenever there are inefficiencies in the market, they are quickly exploited (as in seconds), and the inefficiencies that are not quickly exploited are too difficult for the average person to exploit anyway (which are picked up by Buffett, hedge funds, or individual investors, although I think the vast majority of individual investors do worse than the market). These changes are reflected in the price of stocks. And there are a plethora of ETFs, mutual funds, and active professional investors, so it is not as if everyone is holding an index fund. Most ppl do not have the personal characteristics to even hold an index fund over the long-term, that is the biggest mistake most persons are making.

Once the above steps are implemented, then you can start thinking about what's next.

Thanks for the consistent responses. If I understand your strategy correctly, you invest 50% in passive indicies and 50% in single stocks. How do you evaluate which asset classes to invest in? How do you evaluate which companies to invest in. How does one "get familiar with" a certain company? How does one do the same for an asset class?

@ The Dinosaur:

Thanks for clarifying and posting those articles, I'm still working my way through them. If I've read MMM, intelligent investor and one of Bernstein's books, what's your next invest book suggestion?

@Bankai:

I realize you're the sole anti-index investor here. Thanks for providing a counterpoint. It seems like you're a single stock investor? How do you evaluate which stocks to buy? Do you follow a well known "strategy" (i.e. buy and hold, dividend, growth, value)? Do you invest in anything besides stocks and if so how do you evaluate which of those to buy?

@Michael:

Right now is a horrible time to buy anything! I initially picked the buy and hold strategy because MMM and MadFientist both recommend it. Everything else those dude's say is pretty much solid gold, but I had my doubts about passive indexing, it just seems to good to be true.

Let me clarify my current strategy. My original strategy was (is) a 90/10 stock/bond portfolio achieved with VTSAX and whatever there total bond index fund is called. This is what I currently hold (slightly more bonds because I bought $10,000 to get admiral shares and don't have $90,000 in stocks yet). I picked 90/10 because I'm youngish and don't plan on FIREing anytime soon. I may want to do semi-retirement at some point in the next 5-10 years, but it's equally likely that I get inspired by a new job and swing for the fences on accumulation. I'm currently killing it on accumulation working part-time.

I made an uninformed choice when I chose passive index investing. Passive index investing, I don't know how to say this best, but the whole thing makes me uncomfortable. "Don't worry, you'll never beat the market so don't bother learning. Also, you have to always do this forever no matter what happens or your dumb." It's like jealous ex-lover logic. At the same time I understand it's appeal, I am doing it after all! In my mind, my next step is to learn investment basics and philosophies so I understand what I'm doing. I may stray from index investing but I do understand that changing strategies constantly is not a good plan. I do think reevaluating strategies in an informed way is a good idea. We all read YMOYL right?

A question for y'all. I'm theoretically DCAing but I'm actually too lazy to do this so I usually end up buying in December and April (end of year and right before the tax cutoff). I've been holding off on buying this year because I'm nervous about high stock prices. I probably would have done this anyway due to laziness, so technically I'm still following my implicit strategy.... Would you continue to buy VTSAX at current prices or just hold a cash position? Why?

A purely theoretical question. Would you buy TIPs at a yield of 2%? 3%? What would your allocations be and why?

Y'all are crushing it on the advice and discussion but you're shorting me on the how to. How do y'all evaluate investments/ asset classes? Posting helpful resources is fine. I read a lot! I'm not asking you to hold my hand down the path (I think for investing this is likely impossible) just point me to it. Thanks again!